Why the Greenback Signals Growth
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Quick, name your go-to currencies when markets are rocky.
You probably came up with the yen, the Swiss franc, and the dollar, right?
As they say, two out of three ain't bad.
"The dollar is suddenly taking on the characteristics of the growth trade as currency investors buy the buck on positive U.S. data," says Boris Schlossberg, a managing director at BK Asset Management.
In other words, if you're expecting the dollar to move in the opposite direction from stocks and economic data - where downtrends draw investors to the buck, and rising equities and positive news sends them away - you may well be mistaken.
The shift may have more than one cause, experts say. It may be simply that the outlook for the U.S. economy is now rosier than for Japan. "The differential between the U.S. and the other G3 is so great now that money is actually flowing back into the U.S. dollar on positive U.S. data, something we haven't seen in years," Schlossberg told CNBC. When Wednesday's ADP report was released, he says, the British pound and euro weakened relative to the dollar.
The growth greenback could also be a symptom of a longer-term shift. David Woo, head of global rates and currencies research at Bank of America Merrill Lynch, told me that the "U.S. move towards energy independence may be changing the relationship between the USD and equities." And of course, that shift will be an important foundation for the economy.
Whatever the reason, the message for investors is clear. If you thought you knew how to tell where the dollar was headed, think again. The old patterns are changing.
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